HOW FINTECH PLAYS THE MEDIATING ROLE OF RISK MITIGATION AND ENHANCES BANK PROFITABILITY

Abstract

FinTech has emerged as a critical engine of sustainable development in the banking sector. This study investigates how FinTech adoption affects bank profitability, with a particular focus on the mediating role of bank risk. Using panel data from 82 Chinese commercial banks over the period 2013–2023, we construct a bank-level FinTech adoption index based on textual analysis and the entropy weighting method. The results show that FinTech adoption significantly enhances bank profitability, with risk mitigation serving as an important transmission mechanism. Specifically, FinTech adoption reduces credit and liquidity risk, with the credit risk channel playing the most prominent mediating role. Heterogeneity analyses further indicate that these effects are more pronounced for regional banks and in regions with less developed digital infrastructure, highlighting FinTech’s role in alleviating structural disadvantages. The findings remain robust through a series of robustness checks and endogeneity tests. Overall, this study suggests that the profitability gains from FinTech adoption are closely linked to its capacity to reshape banks’ risk–return trade-offs through comprehensive risk reduction. These results emphasize the importance of aligning digital transformation strategies with risk management objectives and offer policy-relevant insights for regulators and policymakers in emerging economies.